The Supreme Court today dismissed under the comity doctrine plaintiffs' federal court action alleging discriminatory state taxation against the State of Ohio. The Court in Levin v. Commerce Energy, Inc. ruled that comity required that such cases proceed first in the state courts.

(Comity counsels against lower federal court engagement in certain issues that are better left to the states, even when the federal courts have jurisdiction. State tax policy is a paradigmatic example: States rely upon taxation to carry out their functions, and federal courts should be especially cautious against disrupting state tax administration. Congress codified comity principles in the Tax Injunction Act (TIA), which prohibits lower federal courts from restraining "the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.")

The case involved Ohio's tax scheme for natural gas providers. Under the scheme, the State grants tax exemptions to public utilities that provide natural gas (called local distribution companies, or LDCs), but not to competing independent natural gas providers (called independent marketers, or IMs).

A group of IMs and consumers using IMs sued the Ohio Tax Commission in federal court, alleging that the exemptions violated the Commerce Clause and the Equal Protection Clause and seeking declaratory and injunctive relief invalidating the tax exemptions to the LDCs. (The plaintiffs did not seek equal tax exemptions for themselves; such relief would have required the federal court to enjoin collection of a tax under state law and thus would have been prohibited by the TIA.)

The plaintiffs argued that their case was governed by the Court's 2004 ruling in Hibbs v. Winn. In that case, the Court ruled that neither the TIA nor the comity doctrine blocked a federal taxpayer suit against the State of Arizona alleging that the State's tax credit program for children attending private schools violated the Establishment Clause. The Hibbs Court included a footnote, note 9, that appeared to restrict the reach of the comity doctrine: "[T]his Court has relied upon 'principles of comity' to preclude original federal-court jurisdiction only when plaintiffs have sought district-court aid in order to arrest or countermand state tax collection."

The Court thus addressed whether the comity doctrine applied to the plaintiffs' case in light of the Hibbs ruling. The Court first noted that comity is broader than the TIA--that the comity doctrine might counsel against certain federal cases even when the TIA might allow them. It then distinguished Hibbs: First, unlike Hibbs, which involved a fundamental rights, this case involved only a "commercial matter[]"; next, the plaintiffs in this case were taxpayers seeking federal court aid to improve their economic position, not, as in Hibbs, third-party taxpayers; and finally, state courts are better suited to address the scheme, because "they are more familiar with state legislative preferences and because the TIA does not constrain their remedial options" as it does the federal courts.

The Court wrote that any one of these distinguishing features may not have compelled federal court forbearance, but the three together do. (Justice Ginsburg wrote for the majority in both today's case and in Hibbs.)

As to footnote 9: "The Court . . . did not deploy the footnote to recast the comity doctrine; it intended the note to convey only that the Establishment Clause-grounded case cleared both the TIA and comity hurdles."

The ruling thus rejects federal court intervention in cases involving discriminatory tax schemes where the plaintiffs stand to benefit directly from the ruling and where the scheme involves something other than a fundamental right or suspect classification.

But, importantly, the ruling also reaffirms and validates federal court intervention in cases involving civil rights. And while Hibbs took its lumps today--with Justices Kennedy, Scalia, and Thomas in concurrences remaining "doubtful" of the Court's rationale in Hibbs, and with Justice Alito in a separate concurrernce skeptical of the Court's efforts to distinguish Hibbs--the case remains intact, the "clarified" footnote 9 and all.